Investors Got 99 Problems, But Inflation Ain’t One

Latest CPI numbers show (again) that prices are under control

There are a host of things for investors to worry about right now — gold’s implosion, the “sell in May” seasonality, waning momentum in China, and of course the persistent trouble from European debt and American unemployment.

But among the worries, inflation ain’t one of them.

Once again, we got monthly Consumer Price Index data proving that inflation is not a problem. Not even close.

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment.

The all items seasonally adjusted decrease was primarily due to a 4.4 percent decline in the gasoline index. The indexes for electricity and fuel oil declined as well, as the energy index fell 2.6 percent in March after a 5.4 percent increase in February. The food index was unchanged in March, with the index for food at home declining slightly.

So let’s review: In the last year, inflation has been a meager 1.5% — which, absurdly, means that the current miserly yield of 1.7% on 10-year Treasuries actually does grow your money.

And if you want historical context, check out this table. Not only are we well in the range of typical inflation since 2000, we are actually running a bit under it in recent months.

Sure, these numbers are subject to change — and if you want to get all crazy about how the Fed is corrupt and government spending is out of control and the whole idea of fiat money is bunk anyway, go ahead.

But the dollar index — a measure of the greenback against a basket of currency — just hit an eight-month high in early April. And if you’re looking to the gold standard’s return … well, yesterday’s nearly 10% slide in gold should put you off that right quick.

Besides, a mild amount of inflation is good.

It erodes debt over time, since $1,000 borrowed today is easier to pay off in 10 years (presuming wages keep pace with the annual inflation rate).

It encourages spending, since there’s no incentive to hoard your cash as it loses purchasing power.

It is a very preferable alternative to deflation — which is a horrible cycle difficult to break free of.

I reiterate: Among the worries for investors right now, inflation ain’t one of them.

At a Glance

In the last year, inflation has been a meager 1.5% -- which, absurdly, means that the current miserly yield of 1.7% on 10-year Treasuries actually does grow your money. And if you want historical context, not only are we well in the range of typical inflation since 2000, we are actually running a bit under it in recent months.